An institutional assessment of the role of sovereign wealth funds in managing resource revenues

Rietveld, Malan (2016-12)

Thesis (DCom)--Stellenbosch University, 2016.

Thesis

ENGLISH SUMMARY : This dissertation studies the contribution of sovereign wealth funds to the management of fiscal revenues derived from the extraction of natural resources. The literature on the “resource curse” has increasingly identified the institutional and political-economic foundations of the observed cross-country variation in the management of resource revenues. This literature has found the quality of general (or “meta”) institutions – such as the rule of law, democracy, government accountability and low levels of corruption – to be a critical differentiating factor in determining the success and failure of resource revenue management. The growing consensus around this argument – particularly the recent emphasis on “initial institutions” (the institutional quality at the time of resource discovery) – is noteworthy given the dismissal of the importance of institutions in the early resource-curse literature. From a policy perspective, however, a more productive line of enquiry pertains not to institutions at the general level, but to institutional responses to political-economy problems directly related to the management of resource revenues. Using the tools of institutional economics, the dissertation analyses the governance of sovereign wealth funds and the fiscal frameworks that accompany them. An evaluation of leading sovereign wealth funds and their fiscal rules is presented, as well as an empirical assessment of the impact of various fiscal rules in a number of illustrative country cases. The full embrace of the sovereign wealth fund model requires an often-elaborate institutional infrastructure to govern the policies and operations of independent operational investment authorities tasked with managing the assets. The dissertation therefore assesses the institutional arrangements between the owners and managers of the sovereign wealth fund, and a set rule-based investment policies through which to manage the principal-agent relationship established by the delegation of authority to an independent investment manager. It is contended that sovereign wealth funds can address a number of these specific political-economy and institutional problems, even in the context of relatively poor general institutions. A central argument advanced in the dissertation is that sovereign wealth funds alone have limited effectiveness, and that they should therefore form part of a broader fiscal framework that is rule based, constraining and countercyclical. The model of institutional reform developed here can be described as incremental or piecemeal. Considerable attention is paid to “second-best institutions”, particularly in the areas of fiscal rules and asset allocation, as intermediate steps towards more complex institutional arrangements.

AFRIKAANSE OPSOMMING : Hierdie proefskrif ondersoek die bydrae van sowereine welvaartfondse tot die bestuur van fiskale inkomste uit die ontgunning van natuurlike hulpbronne. Die literatuur aangaande die “hulpbronvloek” indentifiseer toenemend die institusionele en politiek-ekonomiese grondslag van die variasie tussen lande in terme van die bestuur van hulpbron-inkomste. Hierdie literatuur dui toenemend op die kwaliteit van algemene (of “meta”) institusies – die oppergesag van die reg, demokrasie, publieke verantwoording, en lae vlakke van korrupsie – as ‘n kritiese onderskeidende faktor in die sukses en mislukking rondom die bestuur van hulpbron inkomstes. Die groeiende konsensus rondom hierdie argument - veral die onlangse klem op die gehalte van institusies ten tyde van hulpbron-ontdekking) – is opmerklik gegewe die ontslag van die belangrikheid van institusies in die vroeë literatuur. Vanuit 'n beleidsoogpunt is 'n meer produktiewe lyn van ondersoek egter een wat betrekking het op spesifieke institusionele reaksies tot politiek-ekonomiese probleme wat direk verband hou met die bestuur van hulpbron inkomste. Hierdie proefskrif gebruik die lens van institusionele ekonomie om die bestuur van soewereinewelvaart fondse en hul fiskale raamwerke te ontlleed. ‘n Bespreking van vooraanstande soewereine welvaartfondse en hul fiskale reëls word aangebied, sowel as 'n empiriese evaluering van die impak van verskillende fiskale reëls in 'n aantal lande. Die volledige “soewereine welvaartfonds-model” vereis ‘n dikwels-omvattende institusionele raamwerk rondom die beleid en bestuur van onafhanklike owerhede wat belas word met die belegging van die fonds se bates. Die proefskrif beoordeel vervolgens die institusionele reëlings tussen eienaars en bestuurders van soewereine welvaartfondse, en die rol 'n reël-gebaseerde beleggingsbeleid in die bestuur van hierdie verhouding. Dit word in hierdie proefskrif aangevoer dat soewereine welvaartfondse 'n aantal van hierdie spesifieke politiek-ekonomie en institusionele probleme kan aanspreek, selfs in die konteks van relatief swak algemene institusies. ‘n Sentrale argument wat aangevoer word is dat soewereine welvaartfondse alleen 'n beperkte effektiwiteit het, en dat hulle dus gesien word as deel van ‘n breër fiskaleraamwerk wat reëlgebaseerde, beperkende en anti-siklies is. Die model van institusionele hervorming wat hier ontwikkel word kan beskryf word as ‘n inkrementele of geleidelike proses. Aansienlike aandag word geskenk aan die konsep van “tweede-beste instellings”, veral op die gebied van fiskale reëls en beleggingsstrategie, as intermediêre stappe in die rigting van meer komplekse institusionele strukture.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/100101
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